Private equity and Washington: A love story

The private equity industry took a beating during the 2012 presidential campaign when Democrats used Mitt Romney’s ties to Bain Capital to attack the GOP presidential candidate as a coldblooded capitalist.

But that political heat hasn’t stopped the industry from luring Washington heavyweights — including Democrats — with big paydays when they leave government.

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This month alone, former Sen. Joe Lieberman (I-Conn.) signed up with Chicago-based Victory Park Capital in an advisory role, while recently departed former Federal Communications Commission Chairman Julius Genachowski joined PE giant Carlyle Group. Former Treasury Secretary Timothy Geithner will begin full time at Warburg Pincus as president in March.

The hiring spree over the past year shows how the industry’s 2012 political black eye did little to dampen the mutual attraction between Washington insiders and private equity — where firms get to boost their reputations with high-profile hires and former officials from across the government can trade in their Washington-bred skills for lucrative private-sector careers.

“The Romney thing — did that cause some temporary publicity to be focused on the industry, given the nature of some of the ads and rhetoric? Was it noticed? Sure,” said former Sen. Evan Bayh (D-Ind.), who joined Apollo Global Management in January 2011. “But I think that’s largely subsided.”

The industry’s aggressive business tactics have at times attracted criticism — especially during the 2012 campaign.

Private equity firms acquire companies and restructure them to maximize profits, sometimes taking on substantial debt in the process. Critics of the industry accuse firms of gutting companies and laying off employees for the purpose of attaining the highest returns for investors. Its supporters say private equity firms can help businesses that are on the brink of collapse and that returns on investments help a wide range of beneficiaries, including pensioners.

The industry’s newest members with Washington résumés say that beyond the handsome financial rewards, PE firms offer them a chance to be involved in areas they focused on in government because the industry invests across a broad swath of the economy.

For Lieberman, the decision to advise Victory Park Capital was based on his personal relationship with his former aide and co-founder of the firm, Brendan Carroll. The senator said in a recent interview that he hopes to help raise the company’s profile, and he offered a measured defense of the industry as a whole.

“Frankly, some have more admirable and constructive records than others,” Lieberman said of private equity firms. “But overall, I think the PE sector has contributed to the growth of the economy. And somebody once said — and I can’t believe I’m actually quoting this, but — if you took the ‘capital’ out of capitalism, you’d be left with only an ‘ism.’”

The stream of government officials who have been snatched up by PE companies recently has raised inevitable questions about Washington’s revolving door and whether former officials are cashing in on their government connections.

“Without a doubt, the private equity firms hired Geithner, [David] Petraeus and Genachowski because of their close connections with federal policymakers in both the executive and legislative branches — and I suspect at a very high price,” said Craig Holman, a government affairs lobbyist at the public advocacy group Public Citizen. “These are examples of revolving-door abuse in which wealthy private businesses attempt to buy access to the government through well-connected former officials.”

Other Washington players who have signed on with PE firms over the past year include former CIA Director Petraeus at KKR’s Global Institute, Obamacare architect Nancy-Ann DeParle at health care PE firm Consonance Capital Partners and retired Army Gen. and former NATO Supreme Allied Commander in Europe Wes Clark at Blackstone.

Some in the industry pushed back against the argument that government officials are doing anything inappropriate.

“These people are too serious, they’re too professional, and they’ve been important in the past, and they want to be important in the future,” said Scott Meadow, who has been a partner in venture capital and private equity firms for over two decades and is also a professor of entrepreneurship at the University of Chicago Booth School of Business. “And the way they can be important in the future is by aiding the growth and development of the portfolio companies that these private equity companies have invested in.”